Like four of the five previous UK prime ministers, Keir Starmer was forced to resign, rather than being voted out.
Last time — Liz Truss in 2022 — it was the bond market that did the forcing. Gilt investors hated her fiscally expansive mini-Budget, and she was toast.
With Starmer, no one can convincingly explain why, with a huge majority in Parliament, he had to go. It will be debated by historians for decades.
The City was clearly not the culprit. Gilt yields are high this year — above Truss levels — but most of that rise was there under Rishi Sunak. The recent leg up above 4.5% on the 10 year is down to the UK’s special ally US president Donald Trump attacking Iran.
In the past couple of months Gilts were more likely to sell off on news suggesting Starmer might go, than that he was staying.
But the bond market is certainly a player in this political transition. It is there in the background — glimpsed indistinctly but certainly — waiting to sit in judgement on his successor.
Meet the boss
Andy Burnham, the almost certain next quaffer of the poisoned chalice, has already bent the knee to this grey master.
A mere shiver from the market was enough for him — four days after the Makerfield by-election was called — to cross his heart and swear to stick to the present government’s borrowing limits.
Most agree — and certainly Burnham seems to believe — he has no room to borrow more, and that probably means not much more spending.
His biggest problem is therefore the same as Starmer’s — what is he for?
The best beginning of an answer to why Starmer failed is that he wasn’t seen as standing for anything. He pleased neither right nor left.
That vice waits to catch any centrist or liberal leader in the current mood of extremism. It was clear as far back as François Hollande’s time as French president, which ended in 2017.
A very talented and resolute leader may be able to break out of the trap, by giving his or her government a strong definition and confident cast. Mark Carney in Canada and Claudia Sheinbaum in Mexico are making a good go of it.
Give me a reason
Two big issues lie before Burnham, both of which matter to the bullies in his new playground — the bond market.
One is defence. Capital markets care about this. They dislike geopolitical risk, so want to see strong Western governments that can defend themselves. They worry about government borrowing, so will take some convincing about plans for more spending, but they respect a proper plan, and are likely to support expenditure with a well defined purpose they endorse.
Bund yields’ reaction to Germany’s 180° pivot to fiscal expansion has been moderate and calm.
Markets also sense large opportunities to finance industrial capex if defence budgets grow. Look at the eager bid for recent defence IPOs.
Burnham could also please the markets by reversing Starmer’s petulant decision not to take part in the forthcoming Defence, Security and Resilience Bank.
Clean break
The other great opportunity for Burnham to mark his government with a strong purpose is to embrace the drive for a green economy.
There is strong political opposition — even from some trade unions. But it is based on false arguments that the quest to cut carbon emissions is hobbling the economy.
Green power generation is now cheaper than conventional. Electrification and decarbonised power are rolling ahead, including in road transport, without needing much money from government.
They do need a clear and stable policy environment, and that is a relatively easy fix.
But the next generations of green technologies that will be needed — carbon capture and storage, low emission cement and steel, power for shipping and aircraft — will take more forceful, carefully considered and determined action by the public sector. Only countries that can manage this stand to lead in the innovation race and reap the biggest benefits in growth.
Unlike artificial intelligence, which is sucking in vast sums of capital by promising to destroy jobs, green technology offers hope.
A well-defended UK fostering green growth is a positive vision that voters — and even bond investors — could get behind.